U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB/A
(Mark One)
|X| Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended April 30, 1996
|_| Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _________ to _________
Commission file number 0-26238
The Source Company
(Exact Name of Small Business Issuer as Specified in Its Charter)
Missouri 43-1710906
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
11644 Lilburn Park Road
St. Louis, Missouri 63146
(Address of Principal Executive Offices)
(314) 995-9040
(Issuer's Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 6,382,389 (as of May 28,
1996)
Transitional Small Business Disclosure Format (check one):
Yes_________ No X
<PAGE>
THE SOURCE COMPANY
QUARTERLY REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE QUARTER ENDED
April 30, 1996
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements Page
Unaudited Balance Sheet as of April 30, 1996 3
Unaudited Statements of Income for the three
months ended April 30, 1996 and 1995 5
Unaudited Statements of Cash Flows for the three
months ended April 30, 1996 and 1995 6
Notes to Financial Statements 7
ITEM 2. Management's Discussion and Analysis 11
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 15
SIGNATURE PAGE 16
EXHIBIT INDEX 17
<PAGE>
THE SOURCE COMPANY
Unaudited Balance Sheet
April 30, 1996
Assets
Current
Cash $ 1,073,570
Receivables:
Trade (net of allowance for doubtful
accounts of $82,824) 3,848,179
Income Taxes 165,700
Related Parties 53,171
Employees 3,623
Interest Receivable 21,498
Notes Receivable - Officers 83,749
Prepaid Expenses 144,236
Other current assets 1,665
- -------------------------------------------------------------------------------
Total Current Assets 5,395,391
- -------------------------------------------------------------------------------
Office Equipment and Furniture 1,578,744
Less Accumulated Depreciation and Amortization 1,035,201
- -------------------------------------------------------------------------------
Net Office Equipment and Furniture 543,543
- -------------------------------------------------------------------------------
Other Assets
Notes Receivable - Officers 233,578
Investment in limited partnership 62,956
Goodwill, net of accumulated amortization 80,968
Cash surrender value of life insurance 71,618
Other 59,335
- -------------------------------------------------------------------------------
Total Other Assets 508,455
- -------------------------------------------------------------------------------
TOTAL ASSETS $ 6,447,389
- -------------------------------------------------------------------------------
<PAGE>
THE SOURCE COMPANY
Unaudited Balance Sheet
April 30, 1996
Liabilities and Stockholders' Equity
Current
Note payable - bank (Note 3) $ 1,807,715
Accounts payable 52,660
Due to Retailers (Note 9) 195,026
Accrued liabilities:
Compensation 306,186
Other 119,542
Deferred income taxes 117,000
Current maturities of long-term debt (Note 4) 45,165
- -------------------------------------------------------------------------------
Total Current Liabilities 2,643,294
- -------------------------------------------------------------------------------
Long-term Debt (Note 4) 71,787
Less current maturities 45,165
- -------------------------------------------------------------------------------
Total Long-term Debt 26,622
- -------------------------------------------------------------------------------
Deferred income taxes 278,000
- -------------------------------------------------------------------------------
Total Liabilities 2,947,916
- -------------------------------------------------------------------------------
Stockholders' Equity
Preferred stock (Note 7) 206
Common stock 63,824
Additional paid-in-capital 2,928,747
Retained Earnings 506,696
- -------------------------------------------------------------------------------
Total Stockholders' Equity 3,499,473
- -------------------------------------------------------------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 6,447,389
- -------------------------------------------------------------------------------
<PAGE>
THE SOURCE COMPANY
Unaudited Statements of Income
Three Months Ended April 30,
1996 1995
-------------------------------------
Commission Revenues $ 1,424,030 $ 1,757,385
Merchandise Revenues 29,938 275,252
- -------------------------------------------------------------------------------
1,453,968 2,032,637
- -------------------------------------------------------------------------------
Cost of Commission Revenues 1,204,838 759,150
Cost of Merchandise Sold 0 171,592
- -------------------------------------------------------------------------------
1,204,838 930,742
- -------------------------------------------------------------------------------
Gross Profit 249,130 1,101,895
Selling, General and Administrative
Expense 876,902 751,363
- -------------------------------------------------------------------------------
Operating Income (Loss) (627,772) 350,532
- -------------------------------------------------------------------------------
Other Income (Expense)
Interest income 8,956 3,145
Interest expense (42,322) (23,669)
Other (5,955) (1,898)
- -------------------------------------------------------------------------------
Total Other Income (Expense) (39,321) (22,422)
- -------------------------------------------------------------------------------
Income (Loss) Before Income Taxes (667,093) 328,110
Provision for Income Taxes 196,864 (247,675)
- -------------------------------------------------------------------------------
Net Income (Loss) $ (470,229) $ 80,435
- -------------------------------------------------------------------------------
Earnings (Loss) per Share - Primary $ (0.07) $ 0.02
- -------------------------------------------------------------------------------
Weighted Average of Shares
Outstanding - Primary 6,379,900 5,340,000
- -------------------------------------------------------------------------------
Earnings (Loss) per Share - Fully
Diluted $ (0.07) $ 0.02
- -------------------------------------------------------------------------------
Weighted Average of Shares
Outstanding - Fully Diluted 6,379,900 5,340,000
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
THE SOURCE COMPANY
Unaudited Statements of Cash Flows
<CAPTION>
Three Months Ended April 30,
-----------------------------------------
1996 1995
<S> <C> <C>
Operating Activities
Net income (loss) $ (470,229) $ 80,435
Adjustments to reconcile net cash
provided by operating activities:
Depreciation and amortization 44,566 34,396
Provision for losses on accounts receivable (16,376) 34,683
Impairment of investment in limited partnership 5,000 5,000
Write-off related party receivable 0 10,644
Deferred income taxes (41,000) 58,000
Changes in assets and liabilities:
(Increase)/Decrease in accounts receivable 327,263 (697,172)
(Increase)/Decrease in other assets (307,540) (107,551)
Increase/(Decrease) in A/P and accrued expenses (525,698) 133,919
Increase/(Decrease) in amounts due customers 111,571
0
- ---------------------------------------------------------------------------------------------------------------
Cash Used in Operating Activities (872,443) (447,646)
- ---------------------------------------------------------------------------------------------------------------
Investment Activities
Loans to officers (54,034) 0
Repayments from related party 0 240,240
Collections from (advances to) employees 3,417 (3,000)
Capital expenditures (53,559) (37,575)
- ---------------------------------------------------------------------------------------------------------------
Cash Provided by (Used in) Investing Activities (104,176) 199,665
- ---------------------------------------------------------------------------------------------------------------
Financing Activities
Issuance of common stock 30,000 0
Issuance of preferred convertible stock 1,922,075 0
Principal payments on long-term debt (19,714) (29,603)
Borrowings under short-term debt agreements 311,000 281,571
Repayments under short-term debt agreements (217,000) 0
- ---------------------------------------------------------------------------------------------------------------
Cash Provided by Financing Activities 2,026,361 251,968
- ---------------------------------------------------------------------------------------------------------------
Increase in Cash 1,049,742 3,987
Cash, beginning of period 23,828 252,555
- ---------------------------------------------------------------------------------------------------------------
Cash, end of period $ 1,073,570 $ 256,542
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
THE SOURCE COMPANY
Notes to Financial Statements (Unaudited)
1. Related Party
Transactions The Company purchases data processing services from
an employment service company owned by certain
officers of the Company. There were $109,867 and
$40,712 of such purchases made during the three
months ended April 30, 1996 and 1995, respectively.
At January 31, 1995, the Company was indebted to
director and stockholder Timothy A. Braswell in the
amount of $56,192. Such debt bore interest at 10.0%
and matured on January 1, 1996. The Company's
indebtedness under the promissory note was secured
by an interest in the accounts receivable of the
Company. This obligation was fully satisfied as the
final payment was made on December 29, 1995.
One of the Company's stockholders also owns a
majority of stock of FMG, Inc., primarily an
investing company. At April 30, 1996 the Company had
a receivable from FMG of $53,171 at prime plus .5%.
The Company currently leases certain office space
and has, in the past, leased an airplane from
partnerships controlled by stockholders of the
Company. Amounts paid for the office space were
$46,575 and $45,750 for the three months ended April
30, 1996 and 1995, respectively. Amounts paid for
the airplane were $0 and $22,063 for the three
months ended April 30, 1996 and 1995, respectively.
Officers of the Company, have from time to time,
received cash advances from the Company. The
officers executed promissory notes in favor of the
Company which bear interest at the rate of 7.34% per
annum and are payable in five equal annual
installments.
2. Notes
Receivable Officers
The notes receivable relate to advances to certain
officers of the Company. The notes bear interest at
7.34% and are payable in five equal annual payments
of $69,489 beginning April 1996. These notes are
current and the Company is unaware of any
circumstances that would negatively impact the
collectibility of these notes.
Included in current notes receivable is $32,304
which was advanced to certain officers on a
short-term basis and is scheduled to be repaid in
the following quarter.
<PAGE>
Other
The Company had a $120,000 unsecured non-interest
bearing note from a non-affiliated company which
required quarterly installments of $6,000 through
June 2000. The note was stated net of discount of
$27,454 which was computed using a 10% imputed
interest rate. On March 31, 1996, the debtor
defaulted on the note. Based on the financial
condition of the debtor, the note was written off
resulting in a charge to selling, general and
administrative expenses during the year ended
January 31, 1996 of $92,063.
3. Notes Payable The Company has a revolving loan credit facility
providing for aggregate borrowings of $4,000,000
scheduled to expire on July 1, 1997. Borrowings
under the loans bear interest at the bank's prime
plus 1% (effectively 9.25% at April 30, 1996) and
are secured by an assignment of interest in the
limited partnership investment, personal guarantees
of certain of the stockholders of the Company, and a
security agreement including equipment, fixtures,
personal property, accounts receivable, contract
rights, notes and general intangibles. Borrowings
under the revolving credit facility at April 30,
1996 were $1,807,715.
4. Long-term
Debt Long-term debt consists of: Debt
Note payable to bank, $3,950 per
month including interest at
bank's prime rate plus .5%
(effectively 8.75%) through
October 1996, collateralized by
equipment $ 23,337
Obligations under capital lease 48,450
----------------------------------------------------
Total Long-term Debt 71,787
Less Current Maturities 45,165
----------------------------------------------------
Long-term Debt $ 26,622
----------------------------------------------------
5. Supplemental
Supplemental information on interest and income
taxes paid is as follows:
Three Months Ended April 30, 1996 1995
----------------------------------------------------
Interest $ 41,000 $ 23,000
Income Taxes $222,000 $ 91,000
----------------------------------------------------
<PAGE>
6. Business Acquisition of the Company by Periodico, Inc.
Combinations
On May 1, 1995, Periodico, Inc. (formerly Garner
Investments, Inc.) acquired the Company through an
exchange of stock. Periodico then changed its name
to The Source Company.
Since Periodico had no significant assets or
operations at the transaction date, the transaction
was accounted for as an issuance of 959,389 shares
of common stock by the Company in exchange for the
net assets of Periodico, which were recorded at
Periodico's cost basis and amounted to $0 at the
transaction date. The pre-transaction date financial
statements of the combined entity are those of the
Company.
Acquisition of Dixon's Modern Marketing Concepts,
Inc. and Tri-State Stores, Inc.
On June 15, 1995, the Company acquired the assets of
Dixon's Modern Marketing Concepts, Inc. and
Tri-State Stores, Inc. (MMC) in exchange for 300,000
shares of common stock of The Source Company and the
assumption by the Company of all the liabilities of
MMC. The transaction has been accounted for as a
pooling of interests and, accordingly, the Company's
financial statements have been restated for all
periods prior to the acquisition to include the
results of operations, financial position, and cash
flows of The Source Company and MMC.
The S corporation retained earnings of MMC totaling
approximately $225,000 representing undistributed
earnings on June 15, 1995 net of $27,000 distributed
in lieu of taxes to shareholders, has been credited
to additional paid-in capital.
7. Preferred Stock The Company has authorized 2,000,000 shares of $.01
par preferred stock. On March 13, 1996, 65,000
shares were designated as 1996 Series 7% Convertible
Preferred Stock. Rights and restrictions on the
remaining shares will be established if, and when,
any shares are issued.
Each share of the 1996 Series 7% Convertible
Preferred Stock entitles its holder to receive an
annual dividend, when and as declared by the Board
of Directors, of $7 per share payable in shares of
the Company's common stock; to convert it into
shares of common stock subject to the conversion
rights described in the Certificates Designations,
Preferences and Relative Rights of 1996 Series 7%
Convertible Preferred Stock (the Certificate); to
receive $100 per share in the event of dissolution,
liquidation or winding up of the Company, whether
voluntary or involuntary; and, subject to certain
conditions in the Certificate, may be redeemed at
the option of the Company at a price of $100 per
share or at the option of the holder at a price of
$100 per share within 30 days following the
effective date of a merger or consolidation in which
the Company is not the surviving entity.
<PAGE>
During March 1996, the Company issued 20,000 shares
of 1996 Series 7% Convertible Preferred Stock for
$100 per share. Brokers' fees totaling $120,000 were
incurred in connection with the stock issuances of
which $60,000 was paid in cash and $60,000 was paid
by issuance of an additional 600 shares of preferred
stock.
On June 3, 1996, an investor converted 5,000 shares
of the Company's 1996 Series 7% Convertible
Preferred Stock into common stock of the Company.
The conversion price was $3.55 per share, which
resulted in the issuance of 140,714 shares of common
stock. This conversion also resulted in the issuance
to certain of the Company's financial advisors of
options to purchase an additional 2,814 shares of
the common stock of the Company. This option to
purchase is exercisable for a two year period at an
exercise price equal to $4.26 per share.
8. Advance Pay Program The Company has established an Advance Pay Program.
Under this program the Company advances an agreed
upon percentage of the incentive payments otherwise
due the retailer from magazine publishers upon
quarterly submission of claims for such payments.
The claims otherwise due the retailer become due the
Company. Included in trade receivables at April 30,
1996 is $485,946 due the Company under the Advance
Pay Program (net of $1,851,460 due the program
participants). Income from the program was $276,733
during the three months ended April 30, 1996 and was
not material in 1995.
9. Due To Retailers The Company has arrangements with certain of its
customers whereby the Company is authorized to
collect and deposit in its own accounts, checks
payable to its customers for incentive payments. The
Company retains the commission related to such
payments and pays the customer the difference. The
Company owes retailers $195,026 at April 30, 1996
under such arrangements.
10. Unaudited In the opinion of management, the unaudited
Financial financial information as of April 30, 1996 contained
Statements herein reflects all adjustments (consisting only of
normal recurring adjustments) necessary to fairly
present such information in accordance with
generally accepted accounting principles. The
results of operations for the three months ended
April 30, 1996 are not necessarily indicative of the
results to be expected for the entire year.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Quarterly Report contains forward looking information that is
subject to certain risks, trends and uncertainties that could cause actual
results to differ materially from those projected. Among these risks, trends and
uncertainties are those related to the ability of the Company to attract
adequate capital resources to fund its growth, and the dependence of the Company
on the terms of incentive programs over which it has no control. For a more
complete discussion of these and other risks, trends and uncertainties,
investors are directed to Exhibit 99.1 attached to the Company's Annual Report
on Form 10-KSB, a copy of which may be obtained without charge by written
request to the Company.
Overview
The Company provides monitoring, documentation and collection services
required to obtain single copy magazine sales incentive payments available from
magazine publishers to magazine and periodical retailers. The Company has
developed a contractual relationship with approximately 50,000 mass merchandise,
grocery and pharmacy stores located throughout the United States and in eastern
Canada under which it provides such services and related merchandising services
on a frequent basis, in many cases daily, and holds power of attorney from its
retailer clients to collect incentive payments from publishers. To further
expand its presence in the upper midwest and increase the number of its
mid-sized chain retailer clients, in June of 1995 the Company acquired all of
the business and assets of Dixon's Modern Marketing Concepts, Inc. and Tri-State
Stores, Inc., both of Chicago Heights, Illinois, in exchange for the issuance of
an aggregate of 300,000 shares of common stock.
A majority of the Company's revenues are derived from commissions
earned in connection with the collection of incentive payments owed to the
Company's retailer clients from magazine publishers. Most such incentive payment
programs offer the retailer a cash rebate equal to a percentage of the
retailer's actual net sales of the publisher's titles which is payable quarterly
upon submission of a properly documented claim. Under agreements with its
retailer clients, the Company gathers sales data, submits claims for payment,
collects payments and receives a percentage of the aggregate payments collected
on the retailers' behalf. Claims for incentive payments are generally submitted
to the publishers quarterly based on actual net sales of the publishers' titles
recorded in the previous calendar quarter. Except in connection with its
expanded Advance Pay Program, the Company does not guarantee to its retailer
clients any payments due to the client from magazine publishers, and
accordingly, does not assume any credit risk associated with such incentive
payments.
Under both the standard arrangement and the Advance Pay Program,
commission revenue is recognized at the time claims for incentive payments are
substantially completed for submission to the publishers based on the amount
claimed, less an estimated reserve necessary to maintain an allowance for
doubtful accounts of approximately 2% of trade accounts receivable. However,
under the standard arrangement, invoices for services provided by the Company in
connection with the claim process are not issued until the Company receives
settlement of the claim. Under the Advance Pay Program, the customer is not
invoiced for the commission, which is the difference between the claim and the
advance amount.
Results of Operations
The following table sets forth, for the periods presented, certain
information relating to the operations of the Company expressed as a percentage
of Total Revenue:
<PAGE>
Three Months
Ended April 30,
1996 1995
---- ----
Commission Revenues 97.9% 86.5%
Merchandise Revenues 2.1% 13.5%
Total Revenue 100.0% 100.0%
Cost of Commission Revenues 82.9% 37.3%
Cost of Merchandise Sold 0.0% 8.4%
Gross Profit 17.1% 54.3%
Selling, General & Administrative Expenses 60.3% 37.0%
Operating Income (43.2)% 17.3%
Interest Expense, Net (2.3)% (1.0)%
Other Income/(Expense), Net (0.4)% (0.1)%
Earnings Before Income Taxes (45.9)% 16.2%
Net Income (32.3)% 4.0%
Commission Revenues
Commission Revenues decreased $333,000 from the comparable period of
Fiscal 1996 primarily resulting from a decrease in space design revenues of
$346,000. Space design revenues are recognized as front end display
manufacturers ship the displays to the retailers, the timing of which is not
within the Company's control.
Recently, many wholesalers were purchased by or merged with other
wholesalers. These consolidations made it difficult, if not impossible, at times
to gather sales data. This activity, combined with the Company's own internal
consolidation of the operations of the once separate entities now comprising the
Company, caused the process of filing claims to fall behind schedule which
resulted in less commission revenue than expected during the quarter ended April
30, 1996. Despite these factors, commission revenues from the Advance Pay
Program grew $167,000 as a result of significant increased retailer
participation. Commission revenue on claims which would have been substantially
completed had it not been for these factors will be recognized in future
quarters.
Merchandise Revenues
Merchandise Revenues decreased $245,000. The decrease was primarily the
result of the discontinuation of time specific programs with Walgreens and Kmart
<PAGE>
that expired prior to January 31, 1996. Such decreases are expected to continue
as a result of management's decision to de-emphasize this portion of its
business.
Cost of Commission Revenues
The Cost of Commission Revenues increased approximately $446,000. These
increases were primarily the result of the Company's effort to more precisely
identify and reclassify categories of costs as direct costs of commission
revenues. Costs of producing commission revenues are inelastic and, therefore,
are not directly proportional to revenue.
Selling, General and Administrative Expense
As discussed above, the Company has reclassified certain categories of
costs as direct costs of commission revenues. Thus, certain costs included in
selling, general and administrative expense during the prior periods are now
classified as direct costs of commission revenues.
Selling, General and Administrative Expense plus Cost of Commission
Revenues (or "total costs") increased $571,000. Wages accounted for $230,000 of
the increase. New hires comprised approximately $90,000 of this increase, while
the balance of the increase was the result of raises and bonuses. Bad debt
expense increased approximately $152,000. Accounting and legal expenses
increased $71,000. Rent, telephone and utilities have increased $44,000 as a
result of adding regional offices in Canada and California. Insurance costs
increased $42,000 resulting from increases in premiums due to the addition of
equipment and personnel. Contract labor, data entry costs and consulting fees
increased $41,000 in connection with the consolidation of the operations of the
once separate entities now comprising the Company.
Interest Expense
Interest expense increased $19,000 due to increased borrowings
necessary to fund the Advance Pay Program.
Provision for Income Taxes
The Provision for Income Taxes differs from the statutory rate due to
non-deductible meals and entertainment, officers' life insurance, country club
dues, and auto lease expense.
Liquidity and Capital Resources
The Company's primary cash requirements are for funding the Company's
Advance Pay Program and selling, general and administrative expenses
(particularly salaries, travel and data entry expenses) incurred in connection
with the solicitation of new clients and the maintenance of existing accounts.
Historically, the Company has financed its business activities through cash flow
from operations, short-term borrowings under available lines of credit and
through the issuance of equity securities.
Net cash used by operating activities was approximately $872,000 during
the quarter ended April 30, 1996 compared to approximately $448,000 for the same
<PAGE>
period in 1995. Cash advanced under the Advance Pay Program increased
approximately $308,000 and cash used to pay wages increased approximately
$268,000. The average collection period for the three months ended April 30,
1996 was 247.8 days (calculated as follows: 365 days/(Revenues/Average A/R))
compared to 114.0 days for the three month period ended April 30, 1995. The
primary factor contributing to the decrease in accounts receivable turnover was
a delay in filing claims caused by wholesaler consolidation and by internal
consolidation of operations of the once separate entities that now comprise the
Company.
The Company is primarily engaged in the business of providing services
to its retailer clients; therefore, its capital expenditure requirements are
minimal. At April 30, 1996 the Company had no outstanding material commitments
for capital expenditures.
The Company has an agreement with Boatmen's Bank of St. Louis, N.A.
("Boatmen's") providing for two separate revolving loans aggregating $4,000,000.
All borrowings under the agreement mature on July 1, 1997. Borrowings under the
agreement bear interest at an annual rate equal to the Boatmen's Corporate Base
Rate plus 1% (9.25% at April 30, 1996) and are secured by substantially all of
the assets of the Company as well as the personal guarantees of Messrs. S.
Leslie Flegel and William H. Lee and their spouses.
The first of these loans is a working capital facility based on
eligible Accounts Receivable of the Company. The second facility is reserved to
fund the Company's Advance Pay Program. Under this facility the Company is able
to borrow up to $2,500,000 based on a percentage of its accounts receivable
derived from the Advance Pay Program.
On February 28, 1996, the Company sold 8,000 shares of its common stock
in a private transaction in reliance on Section 4(2) of the Securities Act and
Regulation D promulgated thereunder. The transaction resulted in net proceeds to
the Company of $30,000.
During March 1996, the Company sold an aggregate of 20,000 of its 1996
Series 7% Convertible Preferred Stock, $0.01 par value per share (the "preferred
stock"), in a series of transactions exempt from the registration requirements
of the Securities Act of 1933, as amended. The preferred stock was sold for an
aggregate purchase price of $2,000,000, resulting in net cash proceeds to the
Company of $1,922,075 after deducting commissions and expenses of $77,925.
Additional broker fees of $60,000 were paid through the issuance of another 600
shares of preferred stock.
From time to time, the Company has made cash advances to the Company's
Chief Executive Officer totaling $270,675 at April 30, 1996. The Company has
made similar advances to the Company's Executive Vice President totaling $14,618
at April 30, 1996. Such advances are evidenced by promissory notes, bear
interest at the rate of 7.34%, and are payable in five equal annual
installments. Additionally, during this quarter, short-term advances were made
to the Company's Chief Executive Officer and Chief Operating Officer totaling
$32,304. This amount is scheduled to be repaid in the following quarter. The
Company also made advances to FMG, Inc., a North Carolina corporation in which
Company officers hold a controlling interest. Such advances bear interest at an
annual rate equal to prime plus one-half percent and had a balance at April 30,
1996 of $53,171. Each of the related parties which are indebted to the Company
are current with respect to all payments of principal and interest, and the
Company is unaware of any circumstances which are reasonably likely to
negatively impact the collectibility of such indebtedness.
At April 30, 1996, the Company's total long-term debt obligations were
$71,787 of which $45,165 is due in the next twelve months. The Company
anticipates that the funds necessary to satisfy these obligations will be
derived primarily from cash flows from operations.
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index.
(b) No current reports on Form 8-K have been filed during the
three months ended April 30, 1996.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
THE SOURCE COMPANY
Date: January 22, 1997 /s/ W. Brian Rodgers
--------------------
W. Brian Rodgers
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
27 Amended Financial Data Schedule 18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> APR-30-1996
<CASH> 1,073,570
<SECURITIES> 0
<RECEIVABLES> 3,848,179
<ALLOWANCES> 82,824
<INVENTORY> 0
<CURRENT-ASSETS> 5,387,495
<PP&E> 1,578,744
<DEPRECIATION> (1,035,201)
<TOTAL-ASSETS> 6,447,389
<CURRENT-LIABILITIES> 2,643,294
<BONDS> 0
0
206
<COMMON> 63,824
<OTHER-SE> 3,435,443
<TOTAL-LIABILITY-AND-EQUITY> 6,447,389
<SALES> 1,453,968
<TOTAL-REVENUES> 1,453,968
<CGS> 1,204,838
<TOTAL-COSTS> 876,902
<OTHER-EXPENSES> (3,001)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,322
<INCOME-PRETAX> (667,093)
<INCOME-TAX> 196,864
<INCOME-CONTINUING> (470,229)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (470,229)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
